How can I determine which plan is right for my company?
Trendcepts will work with you to tailor a plan that best fits your needs. Whether you are a small business owner with or without employees, sole proprietor, partnership or not-for-profit organization, there is a plan that can help you save for retirement.
I have a Profit Sharing plan, but I want to make 401(k) contributions. Do I need a new plan?
You can add the ability to make 401(k) or pre-tax salary deferrals to your existing Profit Sharing Plan. It generally will require the adoption of an amended document. If you choose, you can have different eligibility requirements for the 401(k) portion. Please contact our office for more information and to discuss the impact adding this feature would make on top-heavy contribution requirements, discrimination testing and administrative costs.
What is a salary deferral?
Employees can make contributions to a 401(k) or 403(b) plan in the form of pre-tax salary deferrals (subject to limits). This means that a designated amount or percentage is withheld (or deferred) from their paycheck before taxes. This amount is then deposited directly into the plan.
What is a Safe Harbor 401(k) Plan?
A Safe Harbor Plan automatically passes the discrimination test otherwise required by a 401(k) plan without any need to restrict the deferrals made by the owner or other highly paid employees. This is accomplished by making one of two special contributions to eligible participants: either a (1) 3% of pay contribution (contributed for all eligible employees); or (2) a dollar for dollar matching contribution capped at 4% of pay (contributed for only those employees who actually make salary deferral contributions). Please contact our office for more information.
What is a Roth 401(k)?
This new feature allows participants to make 401(k) contributions on an “after-tax” basis. These contributions are later withdrawn from the plan tax-free. The earnings can also be withdrawn tax-free after meeting certain requirements. Please see our section on the Roth 401(k) feature for more details.
What is the Minimum Required Distribution (MRD)?
This is amount that is required to be distributed from your pension plan or IRA beginning in the year you turn age 70½. The first year’s MRD must be paid to you by April 1st of the following year (year 2). If you delay taking it until the following year, you will still be required to take out the second MRD for year 2 in year 2 which will result in two distributions in that year. If you are still employed, some plans defer this distribution until you actually retire as long as you are not a 5% owner. We calculate the MRD and send out a notice to the plan administrator for each applicable participant. Please note that the MRD must be calculated separately from any IRA’s that the participant might own. The MRD from a qualified plan must be taken from that qualified plan. Unlike IRA’s, these distributions may not be aggregated and taken from your IRA or another qualified plan.
What is Form 1099-R and when is one required?
Form 1099-R is issued to report all distributions from plans. This includes ALL taxable distributions, rollovers, installments and defaulted loans exceeding $10.00. Please note that loans on which payments are current do not require a 1099-R. The plan must provide a 1099-R to each applicable participant by January 31st following the year in which the distribution was made.
Participant FAQ’s
This is general information that may not apply to your individual plan. Please refer to your Plan Administrator or Summary Plan Description for specific information regarding your plan.
What is a Summary Plan Description?
A Summary Plan Description or SPD is a booklet that you receive when entering your plan explaining the plan provisions. If you have not received a SPD, please ask your plan administrator for a copy.
What are Entry Dates?
It is the date you actually enter your plan. Many plans require a period of service in order to join the plan. In addition to a service requirement, entry to the plan is generally restricted to certain dates. These entry dates, for example, can be annual, semi-annual or quarterly. Please refer to your plan administrator or Summary Plan Description booklet for any service requirement or entry dates for your plan.
When can I take money out of the plan?
While plans can allow loans or other withdrawals while still employed, plans do not allow participants to take money from their plan until a “distributable event” occurs. Distributable events are generally limited to termination of employment, death, disability or attainment of the normal retirement age and are defined under the plan. The timing of any allowable distribution from your plan also depends on plan provisions. Once you are eligible for a distribution, the Plan Administrator should provide you with Distribution Election Forms to complete plus a Special Tax Notice regarding plan payments.
Can I take a loan from the plan?
If your plan allows it, then you may borrow money from your account balance. There are different provisions, but loans are usually restricted to the lesser of 50% of your vested balance/accrued benefit or $50,000. Your plan may also require a minimum loan amount. The loan must be paid back within 5 years unless it is used to buy the participant’s primary residence. Payments must be made in fully amortized amounts at least quarterly. The interest rate must be in line with prevailing community standards. Please see your plan administrator for details relating to your plan’s loan policy.
Other than a loan, can I withdraw money from the plan while I’m still working?
Your plan may allow hardship and/or in-service withdrawals. A hardship withdrawal has specific criteria that must be met before it can be allowed. Both types of withdrawals are taxable and subject to pre 59-1/2 early distribution penalties. Please refer to your plan administrator or Summary Plan Description booklet for more details on these types of distributions.
What is the Minimum Required Distribution (MRD)?
This is amount that is required to be distributed from your pension plan or IRA beginning in the year you turn age 70½. The first year’s MRD must be paid to you by April 1st of the following year (year 2). If you delay taking it until the following year, you will still be required to take out the second MRD for year 2 in year 2 which will result in two distributions in that year. If you are still employed, some plans defer this distribution until you actually retire as long as you are not a 5% owner. We calculate the MRD and send out a notice to the plan administrator for each applicable participant. Please note that the MRD must be calculated separately from any IRA’s that the participant might own. The MRD from a qualified plan must be taken from that qualified plan. Unlike IRA’s, these distributions may not be aggregated and taken from your IRA or another qualified plan.
What is form 1099-R and when is one required?
Form 1099-R is issued to report all distributions from plans and must be included with your income tax filing for that year. This includes ALL taxable distributions, rollovers, installments and defaulted loans exceeding $10.00. Please note that loans on which payments are current do not require a 1099-R. The plan must provide a 1099-R to each applicable participant by January 31st following the year in which the distribution was made.